Domestic general insurers have decided to slash their premiums in the ‘own damage’ segment by 5-20 per cent for the existing and new customers of private and commercial vehicles as the new regulations of the Insurance Regulatory and Development Authority of India (IRDAI) have led to a cut in the commission offered by them to auto dealers.
The premium reduction is largely due to the IRDAI’s MISP (Motor Insurance Service Provider) circular which reduced the commission to auto dealers. Insurance regulator has capped distribution fees payable to auto dealers at 22.5 per cent for two-wheelers and 19.5 per cent for four-wheelers and sports utility vehicles (SUVs). Earlier, general insurers used to pay the distribution fees in the range of 30-40 per cent across the segment.
According to industry officials, this is the first time that almost all the general insurers, including New India Assurance, United India Assurance, Bajaj Allianz General Insurance, ICICI Lombard, Tata AIG and SBI General Insurance have revised their ‘own damage’ premiums on vehicles downward despite incurring higher claims.
Currently, there are two types of motor insurance cover: own damage (OD) and third party (TP). The OD is an optional policy while TP is a mandatory one whose pricing is regulated by IRDAI. Insurers also offer comprehensive insurance policies by bundling ‘own damage’ and third party covers. The ‘own damage’ segment — which covers damage to the vehicle or theft — is a profitable business for the insurers while third party is a loss-making proposition.
MN Sarma, CMD, United India Insurance said: “Earlier, since the sector was detariffed, we used to give up to 40-45 per cent discount. After MISP norms were unveiled, we have increased the discount up to 60 per cent… This has been possible as there is a cap on commission to be given to the dealers and we want to pass on the saved commission to the car owners. Now, the total discount on the segment has gone up to 95 per cent. Still, we are happy as we are able to do the business with even 5 per cent margin left with us.’’
G Srinivasan, CMD, New India Assurance, said post MISP, the motor insurance market will witness a differential pricing scenario where customers with good claims records will get reduction in the pricing while the premium will go up for a bad customer. “There wouldn’t be any uniform revision in pricing in the OD segment… We will review all the accounts and the premiums, for the accounts where our experience is bad, will be hiked,” he said.
K Sanath Kumar, National Insurance Company said: “We are not sure about the impact of the new MISP guidelines as the claims in the OD segments are rising.’’
Sharad Mathur, head of sales and distribution, SBI General Insurance, explained that as far as premiums are concerned, it is likely that industry might move towards risk-based pricing. Until now, premiums were largely formula-based across the country, but now we might witness premiums going down in the region where loss ratio is less or customers who drive safely.
IRDAI has simplified the process by allowing the insurer to appoint an auto dealer rather than having a stringent training procedure for other intermediaries. Further, with the implementation of MISP, motor dealers will exhibit greater transparency in the entire approach to distribute motor insurance through this channel, he added.